I found this blog in my drafts section, and wish that I had published it sooner, especially when I read the following sentence…..
“It is said that a crisis is the best way to change habits, but why wait? What happens if it is too late?”
The sad truth is that for some businesses it may already be too late, and they won’t survive the current crisis, especially those in the hospitality industry. Many businesses have been forced to close, and the opportunity to re-open seems a long way off.
Before the pandemic, if I’d asked you to write a list of the most important things you had to focus on as a CEO or a business owner, I would hazard a guess that ‘making a profit’ would have been pretty high up there; maybe even number 1.
“There is one and only one responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” – Milton Friedman
Yes, there would have been other reasons, but if you are not making any money, how is the business going to fulfil its other functions?
Right now, the priority is survival, with profit coming further down the list, and with that in mind, it is even more important to make sure you know exactly where you stand financially.
As a CEO or business owner, you may feel that you know exactly where your business stands financially; you have a finance team, and accountants who present you with management accounts on a regular basis. From these figures you then make decisions on how to run and grow the business.
But what if these figures are not as accurate as you think they are?
Let me give you an example of what happened to one of my clients:
- According to the figures, the company was making a healthy profit.
- The Finance Manager was under pressure and was struggling to keep up with his work load.
- His boss asked if he needed help, but he was adamant that he was fine.
- The Finance Manager left.
- When I arrived the finances were a mess and it took a year to sort them out.
- The true picture was vastly different; the company was not making a profit and were actually in financial difficulty.
- The problem was not just internal; the accountants that the company hired were doing a lot of creative accounting (they were just too busy and were happy to cut corners to meet the deadlines).
This company is not the only one that has found itself in this position, it is scary to see the number of times that I have gone into a business and witnessed something similar.
Just think how the manager of the above company felt having to report to the board that the figures were completely wrong? Imagine them trying to make decisions during this crisis with inaccurate numbers?
Luckily for this company there was enough time to make changes. I produced a ‘Finance Health Check’ that highlighted some key failings and this helped them to take action and get back on track.
Just having accurate accounts doesn’t mean your company is invincible, what it does mean is that you know exactly where you are on a daily, weekly and monthly basis. Most of my clients are now focused on their breakeven point, and how long they can go before having to furlough any of their employees.
Now is the time to make sure your accounts are up to date, and that your systems are sound going forward. Some of my clients have hit a period where business is very quiet, and they are now using the time to get up to date and plan for the future, when things pick up again, as they are sure to do.
If you feel you need any help getting clarity on your finances then I am happy to help, remotely, that is.